The euro is continuing to push on against the dollar, despite trading in a flag formation for the last month. We have now entered the 21 trading session that the pair has been trading in the flag formation, depending on whether you include the 7 November candle. It is generally believed that if a pair hasn’t broken below the flag within 20 candles, or a month in this case, the flag becomes invalid. Given that we saw a break, and close, above the 61.8 fib level, of the move from 25 October highs to 7 November lows, on the 20th candle, I believe this flag formation is now more than likely invalid, although that doesn’t automatically mean the pair has become bullish. Had it broken back above the ascending trend line, dating back to 9 July lows, then it would appear the market is once again bullish. However, as you can see on the 4-hour chart, we saw a perfect doji reversal candle, followed by a bearish candle which was larger than the candle that preceded the doji. This is an evening star formation and is bearish. For me, the key test now is going to be how the pair reacts to the 61.8 fib level, which also previously acted as resistance. If it finds support here, that would tell me that the pair has turned bullish in the longer term. Following this I wouldn’t be surprised to see another assault on the 9 July trend line and a break above which would confirm this in my eyes.
About Craig Erlam
Craig Erlam is Market Analyst at Alpari UK. He joined Alpari (UK) at the beginning of 2012 after four years in the financial services industry, including working at Goldman Sachs. Craig writes market commentary that regularly appears on websites including The Financial Times, Reuters, BBC, The Telegraph and FOX Business. He also provides insight and analysis for clients which he posts daily on Twitter and the Alpari (UK) website. You can also find Craig on YouTube where he gives short market updates, including charting analysis.